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Tax Scams: Watch Out for the IRS’ “Dirty Dozen”

You hear it every year: Watch out for tax scams! But every single spring, you also hear the familiar chorus – scores of Americans fall victim to fraud, costing them money and even their identities.

Criminals can strike anywhere, from your mailbox to your phone to your email inbox, and that’s bad enough – but even tax preparers can be in on the heist! That’s why every year, the IRS releases its “Dirty Dozen” list of the most prominent tax scams they’re dealing with.

But be aware: This list isn’t just for those who would try to steal tax and other information from you. It also includes several popular ways that people try to cheat the IRS … and subsequently get penalized and even jailed for.

Here’s a quick look at all 12 tax scams you need to be on the watch for:

Tax Scams That Cheat the IRS

1. Excessive Claims for Business Credits: The IRS this year warns taxpayers specifically about not misusing a couple of tax credits – a fuel tax credit that’s typically used by farmers, and another credit connected to research activities. But in general, if you don’t qualify for a tax credit, don’t try to claim it under the radar.

2. Falsely Padding Deductions on Returns: There’s no reason to be coy here. Some taxpayers lie about certain things to qualify for deductions, or report bogus expenses, to score a bigger refund. The IRS frequently sees instances of this dealing with business expenses, charitable contributions and big-ticket credits like the Child Tax Credit.

3. Falsifying Income to Claim Credits: This is in a similar vein to not padding your deductions. Certain credits require a taxpayer to reach a certain income threshold – however, lying about this can get you into hot water that involves a ton of financial backlash, including “back taxes, interest and penalties,” according to the IRS.

4. Offshore Tax Avoidance: Some Americans really do have their money in offshore bank accounts, and they can be perfectly legal. But many criminals try to hide income offshore to keep it from the IRS, and those that are caught are slapped with a litany of penalties that have grown in number and severity over the past few years.

Tax Scams That Cheat You

5. Abusive Tax Shelters: This one is a little bit of Column A, and a little bit of Column B. Don’t try to get out of paying your dues to the IRS by funneling your funds through various trusts or other vehicles, lowering your reportable taxable income. While some tax shelters are legal, many are not. In fact, many are fake – and some taxpayers are scammed by con artists claiming they can “protect your assets,” but they’re really using fraudulent tax shelters, or worse, simply cheating you out of your money.

6. Fake Charities: This is a big one to remember around November and December, when charities ramp up their fundraising efforts, evoking the holiday season – and big tax deductions. Some “charities” are nothing more than shams, however, so do your research (such as visiting site like Charity Navigator) to make sure your money is really going to a good cause.

7. Frivolous Tax Arguments: While this one cheats the IRS, it typically comes about from scammers trying to convince you that you can get around tax laws. In short, some con artists try to convince you to make frivolous claims – claims that haven’t held water in previous cases, mind you – to get out of your tax liabilities.

8. Identity Theft: Some people fraudulently file returns using other taxpayers’ Social Security numbers. There’s no special trick to fighting this particular type of scam — it’s simply being as vigilant as possible about protecting your identity and sensitive financial information.

9. Inflated Refund Claims: You need an especially close eye on this one, because many legitimate tax preparers say they can maximize your refunds and even offer “immediate” refunds (by paying you a little less out of pocket, and collecting your full return). However, red flags of actual refund scams including being asked to sign a blank return, or promising a certain amount of money before even seeing your tax forms.

10. Phishing: Phishing technically can occur by mail or even by phone, but it’s an increasingly common and successful form of cyber fraud. In short, a scammer will email you or set up a bogus website – in tax cases, they’ll try to pretend they’re with the IRS — to obtain your personal information. The IRS points out that it will never initiate communication about a bill or refund via email.

11. Phone Scams: Just like phishing, some con artists try to call taxpayers while impersonating an IRS agent, often using threatening language to pressure you into divulging sensitive information. Just like the IRS won’t email you first, it won’t call you first – it will always initiate by sending a bill. Moreover, the IRS will not use language such as threatening to contact law enforcement.

12. Return Preparer Fraud: The IRS points out that while “the vast majority of tax professionals provide honest high-quality service,” some people market tax return services simply to commit fraud with your personal information. Again, the best thing you can do here is do your research, and find out what you can via word-of-mouth from trusted friends and family.

We Can Help You Avoid Tax Scams

McManamon & Co. offers accounting and tax services to keep you from all the dangers of the IRS’ “Dirty Dozen.” While we do our best to ensure everyone gets the best refund they can, we always do so within the limits of the law – maximizing your upside while protecting your backside.

Don’t be one of the thousands of Americans that fall prey to tax scams every year. Call us at 440.892.8900, or get in touch with us online, for honest, quality tax preparation services.

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